Bengaluru, Sep 16 — Finance Minister Nirmala Sitharaman said on Wednesday that decisions on taxation of the digital economy required examining their implications for India, other jurisdictions, and future investment.

In her address at an event organised by the International Tax Research and Analysis Foundation (ITRAF) here, the Finance Minister said issues involving cloud services, digital products, and the consumption of digital services raised difficult questions about where the tax should be imposed and on whom.

"The complexity has to be coolly studied, the implications for India and implications for outside, and above all, the implication that it can have in terms of further investments coming into India, must be coolly studied as well," she said.

FM Sitharaman also highlighted India’s experience with the global two-pillar tax negotiations. She said India had withdrawn two taxes on digital companies during the negotiations, partly to build confidence in the emerging global agreement.

However, she cautioned against viewing the issue simply as a question of whether India was losing tax revenue, saying the taxation of digital businesses was part of a broader global negotiation.

Looking ahead, Sitharaman said the tax policy debate would increasingly have to address issues such as significant economic presence, virtual permanent establishments, the taxation of artificial intelligence and robotics, the gig economy, global mobility, virtual digital assets, global capability centres, and the treatment of goods and services in digital transactions.

She also said the government was open to an institutional mechanism to provide greater clarity on whether digital transactions should be treated as goods or services under GST and income tax laws. She invited industry to send proposals and suggestions on the issue.

The distinction between goods and services in digital transactions is among the issues that have become more complex as businesses increasingly operate across borders, she said.

The Finance Minister also urged tax professionals, industry bodies and researchers to move beyond seeking lower tax rates, exemptions and concessions and contribute more actively to evidence-based tax policy by identifying provisions that may no longer serve the tax system.

She said industry bodies should also be willing to point out provisions that ought to be removed even when they themselves currently benefit from them.

"Consultation must mean more than giving everyone an opportunity to place a representation on record. It should be a genuine exercise of evidence, experience, and ideas," the Finance Minister said.

She further stated that the Goods and Services Tax (GST) Council’s next meeting, scheduled for October 7, would take up process reforms under GST 2.0, including issues related to e-invoicing.

Sitharaman said the previous GST Council meeting had focused on rate rationalisation, while process reforms had been deferred to the next meeting.

She also invited industry to submit specific representations on anomalies, if any, in the GST framework that the government may not have addressed.

Sitharaman further stated that the government had progressively widened foreign direct investment (FDI) limits since 2014, with most investments now coming through the automatic route, except in areas involving security considerations.

She said global investors were looking to diversify supply chains under the “China plus one” strategy and that India’s macroeconomic fundamentals remained attractive to investors.

She also highlighted the role of GIFT City in channelling offshore capital into India, citing sectors such as maintenance, repair and overhaul, shipbuilding and ship repair, and fintech.

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